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2015: Upturn?

As we could expect, government spokesmen are now doing everything they can to talk up the feeble upturn in Danish economy. The narrative is simple: “Fogh (and Løkke) ruined Danish economy, we saved it”.

And as always, the sensible reply is: Not so fast, Poindexter. I’m not an economist and right now don’t have easy access to economic statistics, so this post will lack many of the intermediate arguments, but this is how a criticism of the Danish governments could look like:

First, was the boom of the mid-00s unsustainable and did the Fogh and Løkke governments do too little to stop an unsustainable development in the economy?

Probably. The curious thing is that when I have looked at time-series from the 00s, what strikes me is that the levels of economic growth look inconspicuous. The mid-00s boom was most of all characterised by booming housing prices (and it makes sense to speak of a bubble here) and rising employment. Behind all of this may have been issues related to too lax a regulation of the financial sector in Denmark. Wemay ask if Danish politicians have learnt the lesson about the dangers of lax financial regulation and housing booms.

Second, the direct long-term effects of the financial crisis.

Financial and banking crises take a long-term toll on the real economy. The lack of confidence and debt-minimizing strategies mean that economic acitivty is depressed for several years after the main event. Denmark post-2008 fits this pattern. It was always reasonable to expect that economic activity would pick up at one point. Still, the post-2008 period is one where the performances of nearly all European economies have been dismal.

Third, post-2010 austerity policies.

Denmark like most European countries have followed a strict austerity policy since 2010. The idea has been to limit and if possible reduce government debts. This again follows the provisions of the European Growth and Stability Pact. However, the combined attempt at reducing public *and* private debt at the same time has the effect of depressing the economy. In short, we could argue that the economic policies of the Danish governments since 2010 (and this includes both the Løkke and the Thorning-Schmidt governments) have led to the Danish economy underperforming compared to a standard trend. This means that economic growth sonce 2010 has been lower and unemployment higher than necessary.

Similarly, the efforts of both the Løkke and Thorning-Schmidt governments have concentrated on increasing the supply of labour while the demand for goods and services have been under tight controls. The cuts to the unemployment insurance – and other forms of income transfers – have been the political Achilles’ heel of the Thorning-Schmidt government but perhaps the effects of the economic policy orthodoxy on the political and economic systems merit greater scrutiny when political scientists and historians start begin their forensic analyses of the wreck of social democracy.